Law firms negotiating a Fee Agreement with payment secured by a lien against real estate must take care to ensure that the real estate encumbered by the lien is truly valid security. In an unpublished decision, the Michigan Court of Appeals based its decision upon earlier cases holding that neither a husband nor a wife holding title to real estate in a tenancy by the entireties may, without written permission of the other spouse, create a valid lien against that property.
In Smith v Vainik, Linda, a divorced woman, sued her husband Richard's former attorney for quiet title to the former marital dwelling. In 2003, Richard's former attorney had unilaterally granted a lien to his attorneys on his purported “tenant in common interest” in the house for unpaid attorney fees incurred as a result of the firm's representation of him in an earlier divorce action, which was later dismissed.
Divorce Judgment: In a subsequent divorce action, the judgment of divorce ordered Richard to execute a quit claim deed in favor of Linda assigning all of his interest in the home to her. Additionally, Richard was ordered to remove the charging lien of his former attorneys within six months of the entry of judgment, “whether paying on same or otherwise.” Richard filed bankruptcy and discharged his obligation to the law firm.
The law firm then sought payment from Linda. She filed an action to quiet title to the house. She claimed that the charging lien was invalid and unenforceable under Michigan law and that she had not waived her right to dispute the validity of the lien when the consent judgment of divorce was entered.
The law firm moved for summary disposition in the trial court. Its position was that Linda had received notice of lien through Richard’s interrogatory answers and that, by signing the judgment of divorce, Linda consented to the lien and took the house subject to the lien. In response, Linda contended that the lien never legally attached to the house, and that the judgment of divorce did not address the validity of the lien.
The Court of Appeals ruled in favor of Linda in an unpublished decision. The panel's rationale was as follows:
Under Michigan law, property held by husband and wife is presumed to create a tenancy by the entireties. SNB Bank & Trust v Kensey, 145 Mich App 765, 776; 378 NW2d 594 (1985). The classic basis for the tenancy by the entireties was the concept that the husband and wife are but one person in the law. In a true tenancy by the entireties, each spouse is considered to own the whole and, therefore, is entitled to the enjoyment of the entirety and to survivorship. When real property is so held as tenants by the entireties, neither spouse acting alone can alienate or encumber to a third person an interest in the fee of lands so held. Neither the husband nor the wife has an individual, separate interest in entireties property, and neither has an interest in such property which may be conveyed, encumbered or alienated without the consent of the other. [Canjar v Cole, 283 Mich App 723, 730; 770 NW2d 449 (2009) (quotation marks and citations omitted).] [My emphasis]
[Richard], as a tenant by the entireties, did not have the legal capacity to unilaterally convey a lien on the home to defendants. Canjar, 283 Mich App at 730. Consequently, the trial court properly concluded that defendants’ purported lien against the home was invalid.
Defendants also argue that the charging lien is valid because [Linda] executed the judgment of divorce with knowledge of the lien on the house. Defendants’ argument is without merit. A “charging lien creates a lien on a judgment, settlement, or other money recovered as a result of the attorney’s services.” George v Sandor M Gelman, PC, 201 Mich App 474, 476; 506 NW2d 583 (1993).
Smith v Vainik, Docket No. 303140, Decided July 26, 2012 may be read here. Download Smith_v_Vainik
Take-away: An attorney wishing to create a valid lien in real estate (or any creditor who wants to create a valid lien), must secure the signatures of both husband and wife. A tenancy by the entireties is a legal fiction, but viable nonetheless. When title is held by both husband and wife, no lien is valid unless both husband and wife sign the contract.
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